5 Steps to Starting Your Own Business
Author: Kent Thune
Are you ready to transform your business idea into reality? The specific path to starting a business can be as unique as the idea itself. But the steps in getting there will often take the same basic shape.
Step One: The Big Idea
Before starting a business, you will need a good idea or shape the one that’s already in your entrepreneurial head. Hopefully your idea will be something you are passionate about and one that meets an existing need for consumers. What’s missing where you live? What do you complain about that you would love to fix?
Netflix is a wonderful example of transforming that “aha” moment of discovering a demand that needs to be met. After founder and CEO Reed Hastings got charged $40 for returning a rental movie late, he turned his frustration into inspiration. That $40 fee led to a billion-dollar online DVD rental and video-streaming business.
The Netflix lesson is that anyone can discover the needs that can be filled in their corner of the world, but only a select few—the entrepreneurs—do something about it. It may sound cliché, but it’s true: Where there are problems, there are opportunities.
If you’re not an idea person, you can also look into buying into a franchise or an existing business. You may also look to others for start-up ideas. Once you have decided on the business you wish to start, the real work begins.
Step Two: Creating the Business Plan
Entrepreneurs and creative thinkers are not always the best planners, but putting your idea on paper will help you see it in a way that can help shape it into reality. More important, a good plan puts your creative ideas into the language of business, which can be instrumental in getting the financing you need from investors or lenders to get your business started.
In general, the business plan should tell a compelling story about your business. It will explain the who, what, when, where, how and why. Your plan should be focused and clear. It’s not about the number of pages or style of the cover. The plan should define specific business objectives and goals with general parameters to guide the organization after the startup.
The basic elements of a business plan will begin with the executive summary, which is a one- or two-page summary or your entire business plan. The plan will also include a business description, the products and services, your sales and marketing plan, operations, management team, development, and financial summary.
If all of this seems foreign or intimidating, don’t worry! Many successful business owners have been in the same position as you at some point. There are also useful tips and easy-to-follow business plan templates on Internet sites such as SBA.gov or Entrepreneur.com.
Step Three: Financing the Startup
The number one reason that small businesses fail is that they run out of money. Even the best idea has almost no chance of surviving the initial planning phase if there is not enough money to get it off the ground. But with your business plan in hand, you are ready to go find yourself some capital.
Most small businesses have three options for financing: bank loans, investors, or friends and family. Each of these options has different considerations for the business. Bank loans burden the business with an additional expense of the loan payment plus interest, which can erode the business profits. Investors, and sometimes friends and family, usually want ownership and control of their portion of the business.
What if your friends and family can’t offer much help and the bankers and investors reviewed your business plan and have rejected it because your credit is less-than-stellar or your idea is untested in the marketplace? Enter a fourth capital source alternative: crowdfunding.
With crowdfunding, there’s no credit check; there are no underwriters, and no limitations on your dreams. Here’s how it works: The entrepreneur initiates or proposes a project or idea to be funded on a crowdfunding website; the crowd supports the project by pledging cash in return for rewards; the entrepreneur markets the project in hopes of hitting his or her financial goal that will turn the project or idea into reality.
The top three crowdfunding sites today are GoFundMe, Kickstarter, and Indiegogo. But you don’t just throw an idea on a crowdfunding site and wait for the money to roll in. To have a successful campaign, it is crucial to plan in advance and work to make it happen.
A local and recent success story with crowdfunding is John Cranford of the popular Hilton Head Island Southern rock band, Cranford Hollow. Cranford was able to attract over $18,500 from friends and other backers to support his band’s touring and recording expenses.
Step Four: Starting the Business
You have the plan, the money and the passion. You’re ready, right? Not yet, as with everything you need to take the legal issues into consideration. If you haven’t already chosen your legal structure, this is the step where you will do it. You will choose among three basic structures: Sole Proprietorship, Partnership, or Corporation. Your legal structure will have an effect on your financing and taxation, so be sure to make this the right fit for you. Now you can file with the state to incorporate, obtain a federal identification number, and open bank accounts in the name of your business.
Also, before you can open your doors to customers, you’ll need doors to open! Again, you should have done some planning for your location, property needs, and physical assets in your business plan. But you may still have some final decisions to make. Where are you going to run your business? Will a home office work for you? Or is commercial space needed to service your customers? Do you need to hire employees to help you run the business? Do you need to hire an accountant for your bookkeeping needs?
Step Five: Opening the Doors
Now that you have the plan, the financing, and the legal and physical structure in place, you are ready to transform your ideas and dreams into reality. You can now look forward to the issues of managing a business.
Once the doors are open for business, keep in mind that everything won’t happen according to your business plan. No matter how good your idea or location, it’s not wise to have a “build it and they will come” vision of success.
The key to your early success will be your first customers. They are your first source of revenue, and they legitimize your idea and demonstrate that there actually is a market for your products and services. They’re also a source of valuable feedback that will help improve your business so more customers keep coming in. Don’t overlook the opportunity to ask if you can turn some of the positive feedback into testimonials, which can be used in your advertising and on your website.
All that remains now is to keep the doors open! Continue to tweak your business plan, expect and embrace the inevitable challenges, and allow your passion to lead the way.
Kent Thune is a money manager and the owner of a Hilton Head Island investment advisory firm, Atlantic Capital Investments. He is also a freelance writer and is currently working on a book to be published later in 2015. Follow his musings on mind, money and mastery of life at TheFinancialPhilosopher.com or follow him on Twitter @ThinkersQuill.